Commercial Law

Quasi-security cases

Hendy Lennox v Grahame Puttick [1984] 2 Lloyd’s Rep 422

Key Point

• Where large components or sub-assemblies are concerned, a retention of clause may continue to be enforceable where they have been assembled into part of a larger machine, provided that they have not been altered or worked upon, so that they can be detached and restored to their separate existence in their original state.

Facts

• The claimant sellers supplied diesel engines to the defendant buyers under a contract that includes a "retention of title" clause which ensures the sellers retain ownership until full payment is made. The sellers expected the engines to be integrated into generating sets and sold to customers (sub-buyers) with their essential characteristics unchanged.
• The buyers went into receivership, having an overdraft with a bank which had a charge on their assets.
• Later, the sellers—having not received payment—secured an interim injunction preventing the buyers from selling or transferring the engines.
• At the defendant’s premises, three generating sets were involved: two were in a deliverable state, with their serial numbers provided to sub-buyers, while the third was not in a deliverable state.
• The injunction was lifted after the buyers agreed to deposit the sale proceeds into a joint account held by the parties’ solicitors.
• The sellers claimed from the sale of three engines and other engines whose ownership had transferred at the start of the receivership.

Issues

• Did the sellers once have a valid proprietary claim in proceedings to the engines? If so, has that claim been transformed into a claim against the proceeds of sale?
• In any event, do the sellers have a direct claim for the proceeds of sale of the engines?